Opinion recap: Hall Street v. Mattel
on Mar 25, 2008 at 2:38 pm
In a 6-3 opinion, the Supreme Court ruled that the Federal Arbitration Act contains the exclusive grounds for promptly vacating or modifying an arbitral award. Justice Souterâ€™s opinion rejects petitionerâ€™s argument that parties may contractually agree to expanded grounds of review. However, the Court vacated the judgment and remanded the case for proceeding consistent with the opinion. Justice Kennedy joined Justice Stevensâ€™s dissenting opinion while Justice Breyer dissented separately.
The Court begins by rejecting Hall Streetâ€™s two principal arguments for expanding the grounds of review. First, in the Courtâ€™s view, petitioner misinterprets its decision in Wilko v. Swan. While conceding that the case does contain â€œsome language arguably in favor of Hall Streetâ€™s position,â€ the Court emphasizes that â€œarguable is as far as it goes.â€ Wilko does not explicitly expand the grounds for vacatur beyond the statute, but instead expressly rejects the type of expansion that petitioner seeks â€“ that is, general review for legal error. Furthermore, the term â€œmanifest disregardâ€ is vague, and could well just be shorthand for the statutory grounds â€“ i.e., when the arbitrators are â€œguilty of misconductâ€ or â€œexceeded their powers.â€
The Court also rejects petitionerâ€™s contract argument. Though recognizing the FAAâ€™s general policy towards enforcing tailored agreements, the Court moves on to analyze whether the statutory text compels exclusive grounds of review. Souter notes that the text specifically includes statutory grounds that emphasize extreme arbitral conduct. Relying on the maxim of statutory interpretation ejusdem generis â€“ â€œwhen a statute sets out a with a general term, that general term is confined to covering subjects comparable to the specifics it followsâ€ â€“ the Court explains that because the statute includes â€œno textual hook for expansion,â€ the parties cannot expand review to any legal error when the specific statutory instances are only for outrageous conduct. â€œâ€˜Fraudâ€™ and mistake of law are not from the same cut of cloth.â€ Moreover, the Court notes that Â§ 9 does not hint of any flexibility in the confirmation unless a â€œprescribedâ€ exception applies.
The Court instead views Sections 9 through 11 as stating a policy in favor of enforcing arbitration with limited judicial review. â€œAny other reading opens the door to the full-bore legal and evidentiary appeals that can â€˜rende[r] arbitration merely a prelude to a more cumbersome and time-consuming judicial review process.â€ Justice Souter does not divine whether this holding will cause an exodus from either arbitration or the courts. Rather, based on the text, the Court has â€œno business to expand the statutory grounds.â€ Additionally, the opinion is quick to remind that this ruling speaks only to review under the FAA. Other enforcement options are available to parties, i.e., state courts and the common law.
In dicta, the Court took a moment to expound on another avenue that may have been open to the petitioner. Because the parties, during the course of litigation, submitted the arbitral agreement to the district court, which adopted the agreement as an order, the Court pondered in oral arguments whether the agreement should be treated as â€œan exercise of the District Courtâ€™s authority to manage its cases under [FRCP] 16.â€ The Court ultimately declined to resolve this case management issue, but it did note that it was an open question for the district court to consider on remand.
In his dissent, Justice Stevens argues that the majority opinion â€œconflicts with the primary purpose of the FAA and ignores the historical context in which the Act was passed.â€ Section 2 of the FAA makes arbitral agreements â€œvalid, irrevocable, and enforceable,â€ which was a departure from the common law and the core purpose of the statute. Therefore, Justice Stevens argues, the Court should err on the side of enforcing the terms of a negotiated agreement.
Justice Stevens deems unpersuasive what he regards as the Courtâ€™s two principal reasons for reaching their result. First, he rejects the notion that the litigants and Congress engaged in a quid pro quo conditioning expedited enforcement on acceptance of limited judicial review. Second, he also rejects the Courtâ€™s statutory analysis as a â€œwooden application of â€˜the old rule of ejusdem generis.â€™â€ To negate both reasons, his dissent relies on the Â§ 2 purpose of the statute and the historical context in which it was legislated. In his view, this case is an opportunity for the court to favor the freedom of the parties to set the terms of their agreement.
In his dissent, Justice Breyer focuses on whether the FAA â€œprecludesâ€ a federal court from enforcing the agreement. In his opinion, both the majority opinion and Justice Stevensâ€™s dissent agree that the FAA does not preclude enforcement of the agreement. Therefore, because the agreement is enforceable, he would remand the case to the court of appeals with instructions to â€œaffirm the District Courtâ€™s judgment enforcing the arbitratorâ€™s final award.â€